Research with Impact: How SHoF Research Was Used to Evaluate Sweden’s COVID-19 Tax Deferrals

feb. 12, 2025

During the COVID-19 pandemic, Sweden introduced temporary tax deferrals to ease business liquidity shortfalls. Riksrevisionen, or the Swedish National Audit Office, reviewed their effectiveness in a new report, using insights from Swedish House of Finance research.

During the COVID-19 pandemic, Sweden introduced temporary tax deferrals to ease liquidity shortfalls for businesses, allowing them to postpone payments on employer contributions, payroll taxes, and VAT. The policy aimed to support viable firms facing short-term financial strain.

To assess its effectiveness, the Swedish National Audit Office (Riksrevisionen) conducted a review, drawing heavily on research by Swedish House of Finance (SHoF) researchers Gustav Martinsson and Christian Thomann on government-backed credit interventions during past crises. Martinsson also served as the reference expert for the report.

Identifying Financially Constrained Firms

Applying the methodology from Martinsson and Thomann’s study, Riksrevisionen categorized firms based on pre-pandemic financial indicators, using data from the Swedish Tax Agency, Statistics Sweden, and the Swedish Companies Registration Office.

Both the study and the review found that firms with weaker financial health before the crisis were overrepresented among those seeking deferrals, raising concerns about whether the measure effectively targeted financially viable businesses.

Assessing the Impact on Liquidity

The report measured how the tax deferrals affected firms’ liquidity by tracking changes in cash holdings and short-term debt levels. By comparing businesses based upon the potential size of deferrals, Riksrevisionen examined whether deferrals reduced firms’ exposure to financial distress and if it led to an increase in working capital. The findings suggested that the tax deferrals improved liquidity and reduced financial distress.

Credit Substitution and Crowding Out

A central concern in Thomann and Martinsson’s study was whether government-backed credit initiatives crowded out private lending. Riksrevisionen applied a similar approach and found that firms’ borrowing increased and that to some degree bank loans were replaced by tax deferrals.

Estimating Fiscal Costs

Following the researchers’ cost-benefit framework, Riksrevisionen evaluated the long-term fiscal impact of the tax deferral program. The government initially estimated a net cost of 2.6 billion SEK, assuming that most deferred taxes would be repaid. However, Riksrevisionen found that the actual cost was closer to 10 billion SEK due to unpaid taxes and firm defaults.